Against Intellectual Monopoly

the theory on the long-run equilibrium and bypassing the study of the
short-run dynamics when capacity constraints are binding yields a formally
elegant model with, unfortunately, little or no practical relevance. In spite
of our dislike of Keynesian monetary economics, John Maynard Keynes's
dictum, "in the long run we are all dead," does seem to apply to new growth
theory.
    There is an additional and important reason why the theoretical foundations of the new growth theory are shaky. A key element of new growth
theory is the assumption that after an imitator enters, price will be driven
down to cost, and there will be no profits to pay for the original innovation.
A moment of reflection shows that if there is any cost at all to imitation,
then there will be no imitation, and the innovator will enjoy an unfettered
monopoly. For the imitators correctly understand that if they were to enter,
they would lose their fixed cost of imitation. That is, if we take seriously
the argument as to why there should be no innovation without intellectual
property, we find that it means instead that there will not be imitation
without intellectual property, thereby undermining the first argument.I i
    Now, strictly speaking, new growth theory assumes that imitation is in
fact costless. Amazingly enough, this does not suffice to save the argument.
For in this case imitators are indifferent to imitating, as there is no profit
in it. So there is a perfectly good equilibrium in which innovators get monopoly profits and imitators choose not to enter. And there is also a -
fairly implausible - equilibrium in which there is no innovation for fear that
the imitators, although indifferent, will choose to enter. For some reason
that completely escapes us, the scholars working in the new growth theory
tradition take the least plausible equilibrium under the least plausible set of
assumptions and act as though it is a dead certainty in the real world. Go
figure.

Unpriced Spillover Externalities
    A variation on the fixed cost plus constant marginal cost theme is that ideas
are subject to unpriced spillover externalities - technical jargon hiding a
simple idea that is easily illustrated through the example of the wheelbarrow. After the wheelbarrow is invented, to make productive use of it by
moving sand, dirt, and dung around, it must be used in plain sight. Any
passersby will see the wheelbarrow in use, and by doing so will get the idea
of a wheelbarrow for free, thereby rushing home to build their own wheelbarrows. Hence, the valuable knowledge of the wheelbarrow is transmitted
without the permission of, and without payment to, the inventor.
    There is no point in denying that a number of valuable innovations are
like the wheelbarrow; in these cases, imitation is relatively cheap and, what
is more important, imitation can be carried out without having to purchase
a copy of the idea from the original innovator. If looking and studying what
the other person has done is enough to produce a good imitation, and very
little compensation accrues to the innovator for the act of looking, then
we say that there is an unpriced externality. Once you recognize that such
cases exist, three questions become important. First, how widespread are
they? That is, how many inventions are like the wheelbarrow? Second, for
those that are like the wheelbarrow, are the externalities so large that, absent
intellectual monopoly, the original innovator would have never invented
the wheelbarrow? Third, and finally, is intellectual monopoly the socially
smart way to address this potential inefficiency?
    Young, Schumpeter, Arrow, and their more recent followers seem convinced that most ideas are like the idea of the wheelbarrow, spreading freely
and costlessly. When we are reminded by our Mexican friends that the Mayas
had the wheel but, partly for religious reasons and partly because the rough
terrain made its use unbeneficial in the short run, used it only for children's
toys, calendars, and other ritual purposes, but never for carts or other practical uses, or when we learn that the "idea" of agriculture spread from the
Fertile Crescent at the amazing speed of roughly one kilometer per year, we
tend to doubt that most ideas spread as fast as many economic theorists theorize. Not to speak of the ability of making espresso coffee properly,
which seems to still remain secluded within the boundaries of Italy, or of
Naples as a